Goldman Sachs CEO David Solomon on Running a Bank in the Age of AI

There's a lot of debate about the future of AI — not just whether it will produce the returns investors are expecting, but also if AI will lead to mass worker displacement. Big banks are the perfect prism through which to explore some of these questions. Not only are they deploying AI very quickly, but they have a wide range of workers who are using the technology, from back-office employees to junior analysts to the most senior investment bankers. In this episode, we speak with David Solomon, chairman and CEO of Goldman Sachs, about the impact of AI on the banking business, and why he does not predict a major white collar wipeout. We talk about the outlook for headcount, current conditions in capital markets, and the bank's role in the upcoming SpaceX IPO and Alphabet's historic equity capital raise. He also tells us about his early career in junk bonds and (because of his love of electronic dance music) how AI is transforming music production. Read: Anthropic Picks Morgan Stanley, Goldman Sachs to Lead IPO Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee, so search Barclays Brief wherever you get your podcasts.

• 0:25Speaker 01

  Running a business means keeping pace with the latest tech. You put a lot into building your enterprise software stack, and scrapping it to integrate AI is out of the question. That's why IBM Technology works with all the apps, data, and models you need. It's another way IBM helps you build on the technology you rely on. Let's create smarter business. IBM. Visit ibm.com to learn more.

• 0:54Tracy Alloway?

  Hey there, Odd Lots listeners. We are very excited to announce that we're going to be heading to Hong Kong for a very special live event.

• 1:01Joe Weisenthal?

  That's right. I love Hong Kong. I'm super excited. I haven't been there since 2018. And I'm very excited. We're going to be doing one of our trivia nights while we're in town.

• 1:10Tracy Alloway?

  One of our pub quizzes.

• 1:12Joe Weisenthal?

  That's right.

• 1:12Tracy Alloway?

  So this one is going to be held on the evening of June 11. We are starting the actual quiz at 6:30 PM, and it's going to be at Soho House.

• 1:22Joe Weisenthal?

  That's right. So if you would love to prove your knowledge of all things markets, finance, and economics, if you want to meet myself and Tracy, if you want to hang out with fellow listeners, please, we'd love to see you at our Odd Lots trivia night on June 11 in Hong Kong at Soho House, Hong Kong. And you can find tickets, go to bloomberg.com/oddlots. You'll find a link there to our live event, and you can come purchase tickets. Just 400 Hong Kong dollars. I assume that's a good price.

• 1:51Tracy Alloway?

  It's a bargain, and we hope to see you there.

• 1:59Tracy Alloway?

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:14Tracy Alloway?

  Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Alocke.

• 2:18Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:20Tracy Alloway?

  So, Joe, when we talk about AI

• 2:22Joe Weisenthal?

  Yes.

• 2:22Tracy Alloway?

  and its impact on jobs

• 2:24Joe Weisenthal?

  Yes.

• 2:24Tracy Alloway?

  and businesses, one of the things we like to do, or one of the prisms through which we like to explore AI is through banks.

• 2:32Joe Weisenthal?

  Absolutely.

• 2:33Tracy Alloway?

  So you think about banks, they've got big tech budgets.

• 2:36Joe Weisenthal?

  Yep.

• 2:36Tracy Alloway?

  They're talking to AI companies all the time. They're their clients, essentially. So they're deploying a lot of this technology. And then they have this whole array of jobs, right? You have the classic sort of process workers in the back office.

• 2:50Joe Weisenthal?

  Yes.

• 2:51Tracy Alloway?

  You've got the junior analysts who are churning out PowerPoints, but you also have bankers in IB who are doing more, I guess, relationship-driven business. So you have this really good cross-section of the sort of white-collar jobs that people think about when we think about AI disruption.

• 3:07Joe Weisenthal?

  Do you remember in the 2010s when every bank CEO is like, you know, we actually like to think of ourselves as a tech company?

• 3:14Tracy Alloway?

  I remember.

• 3:15Joe Weisenthal?

  That was a fun little-

• 3:15Tracy Alloway?

  Bring in the ping-pong tables for the engineers. That was it, right?

• 3:19Joe Weisenthal?

  That was a fun little era. But no, you're absolutely right. And of course, you know, AI is largely expected, at least until we have much more advanced robotics, expect to affect white-collar labor first. You mentioned the whole range. But there are aspects of, when I think about being a banker, working in a bank, that, to your point, really do feel like relationships. And like, there's the cliche, it's like, go out and golf. But I think they do actually golf a lot. I think that is part of the business.

• 3:44Tracy Alloway?

  All right. Well, we'll find out. We have spoken to Marco Argenti at Goldman Sachs before. He's the CTO about how the bank is actually deploying technology. But today, we have an even more, more perfect guest-

• 3:55Joe Weisenthal?

  We have the perfect guest.

• 3:56Tracy Alloway?

  if that's possible. We're going to be speaking, of course, to David Solomon. He's the CEO and chairman of Goldman Sachs. And he just penned an op-ed in the New York Times with the headline, "I'm the CEO of Goldman Sachs: The AI Job Apocalypse Is Overblown." So truly, the perfect guest to talk about all of this. David, thanks for coming on Odd Thoughts.

• 4:15Speaker 03

  Thank you for having me. I'm delighted to be with you guys.

• 4:17Tracy Alloway?

  Congrats on the op-ed. You're in the media industry now.

• 4:20Speaker 03

  Well, I'm trying not to be in the media industry. And I'm glad I wrote the op ed. By the way, not my title, the New York Times title. But I'm glad I wrote the op ed. Why did you write it? Well, I wrote the op ed. I haven't written a lot of op eds. I think in my eight years, I've written two. And the last one was back in 2019 before COVID. And it was around, it was around energy where I was trying to talk about the fact that I thought there was going to be real change in the context of the energy supply chain. And it was very important that we made investments in things that were greener and we moved in that direction. But I also stated at the time and took a little heat for this very emphatically that oil and gas was going to be a significant part of the energy supply chain for decades to come. Good call. Goldman Sachs would be financing fossil fuel companies for a long, long time.

• 5:03Speaker 03

  And, you know, looking at the lens now, I think that, that it is very important that we have a thoughtful and detailed discussion about the change that's going on. And let's just start, if you don't, if you don't mind, if I can step back. I am hugely, hugely optimistic about this technology and the impact that this technology can have on large scale enterprises like Goldman Sachs and the productivity gains that it can create, which I do believe can increase economic growth, create more prosperity and more impact on our economic system broadly in a very, very positive way. I am hugely optimistic and I, I think about things in five to 10 year time bites. Like what should we expect to see over the next 10 years?

• 5:47Speaker 03

  That's the way I think about things when I make a statement like that. At the same point, I'm extraordinarily cognizant about the fact that it's not going to be a straight line. There's going to be disruption. There are going to be jobs displaced as there have been with any other technology acceleration over the course of history. And we as a, as an important company and governments also do too, play a role in thinking about what's the best way to make this go as well as possible, but with the ultimate goal of having the technology make our society more productive and therefore allow for more economic growth and more participation by everyone. And I was listening to a variety of things that were being said and they didn't really make sense to me. And I thought it was important for Goldman Sachs to get into the discussion.

• 6:29Speaker 03

  And so there are things that are always different, but I generally, you know, if you want to talk about kind of fundamental principles that I have after 40 some years of doing this, it's never different this time. Meaning, I don't think we're going to wake up in a world where nobody works, and there has to be universal basic income, and we have massive unemployment. I just don't think that's the way our economy works. And when people start talking about those things, or postulating about those things, I don't think they're being thoughtful about really looking in a granular way at the labor force and how job creation works in our economy, and how technology disruption in the past has changed and shifted the nature or the makeup of labor and the economy in the US.

• 7:09Joe Weisenthal?

  So I think to even begin the discussion of like, will AI cause a white collar wipeout? Or, as you did say in the op ed, like, some areas will really change and head counts will change, but to begin this conversation, you have to know, like, well, what is a job? What does someone actually do at their job? And so, I don't know, maybe this is a chance I'll let you like, butter you up, let you brag about yourself for a little bit. I saw a quote, I was doing some prep, and you were talking about, early in your career, and going from Bear Stearns to Goldman, you say, and you said, "I was a big producer at Bear Stearns. I built a lot of relationships there and brought a lot of relationships to the firm." What made you good at your job? What was, like, there were a lot of people there at Bear at the time. You eventually became the CEO of Goldman Sachs.

• 7:53Joe Weisenthal?

  What was it that, like, the skill that you've had, or that successful people in that role had, that made them do their jobs well?

• 8:03Speaker 03

  Well, finance has evolved.

• 8:07Speaker 03

  You know, I started in 1984. I recently referred to, that is, the prehistoric days of finance, when, by the way, I have long flowing hair. You know, it was just a very different world. And so, let's just start with the fact that finance was a relatively nascent industry, and also had been relatively stagnant for 15 years, because we really went through a period from the late 60s to the early 1980s, where interest rates were going straight up.

• 8:32Joe Weisenthal?

  Yeah.

• 8:33Speaker 03

  September 15th, 1982, is a very, very important day in the history of financial markets, because that is the day that the 10-year Treasury hit 15.9%. And it also happens to be, you know, it also happens to be a little less than two years before, you know, I landed at the Irving Trust Company at One Wall Street to start my career. And, you know, at the time, you got trained to do analysis, but the business was very entrepreneurial, there was very little structure, and there was so much open running room.

• 9:07Speaker 03

  To go out and participate that young people, especially when you got away from the most white shoe firms, which at the time were Goldman Sachs and Morgan Stanley, were really encouraged to go make their way. And so I was working at Irving Trust. And this was a time when almost everybody in finance went to business school. I was applying to business school in 1985, and I got a job offer to work in the jump on business at Drexel Burnham. And I decided to take it because it appeared lucrative. And my dad-

• 9:42Tracy Alloway?

  Jump bonds were like the only thing taking off, basically, in finance in the early 80s.

• 9:47Speaker 03

  They were, it was definitely an area of finance that was accelerating. And it was very entrepreneurial. And I said to my dad, this is taking a risk because everybody else is going to business school. And my dad said, go try it for two years. If it doesn't work, you go business school in two years. I mean, it was really, it was a pretty-

• 10:01Joe Weisenthal?

  Good advice.

• 10:02Speaker 03

  It was a pretty simple-

• 10:03Joe Weisenthal?

  Yeah.

• 10:04Speaker 03

  You know, piece of advice. But I went to Drexel Burnham, it was very entrepreneurial. And the culture, there were good things and bad things about the culture at Drexel. And some of the bad things are the reason why in 1990, on February 14th, 1990, Drexel Burnham went out of business, as many other Wall Street firms have in the history of Wall Street. But for the four and a half years that I was there, basically, I was told, go find a way to build relationships and make money. Go find a way to build, you know, I was 24 years old. Go bring business into the firm.

• 10:31Tracy Alloway?

  Did you golf?

• 10:32Speaker 03

  We sat at a desk. I golfed a little bit, but we sat on a desk and we called people and talked to people. And it was a time when, it was a time in the world when if you picked up the phone and called someone, you would get them on the phone and you would talk to them. And if you were an effective salesperson, you could do a lot of business.

• 10:49Joe Weisenthal?

  So to some extent, you were like good at sales. You were good at making that call.

• 10:53Speaker 03

  One of the great experiences, I have, this is an experience I've talked about a little bit, but I haven't talked about a lot. But a seminal experience in my personal development was the summer after my freshman year in college.

• 11:06Speaker 03

  I got an internship in a Merrill Lynch office. That happened to be the office that was, I think it was like Ten Penn Plaza. It was by Madison Square Garden and I, I got the internship because I was, my, my high school girlfriend's father ran that Merrill Lynch office.

• 11:20Joe Weisenthal?

  That always helps.

• 11:21Speaker 03

  And, um, and he said, why don't you come and do an internship for the summer? And I said, what would you do? And he said, you'd call on clients. I really had no idea what he was talking about. So I show up at this Merrill Lynch office and they plop me down and they give me a zip code list. Okay, basically, and it was the zip code was 10028 and 10128. Basically the Upper East Side of Manhattan. This is 1981, okay? They give me a zip code list and they say, make a hundred phone calls a day and ask people if they're interested in talking to a Merrill Lynch broker. And during the course of the summer, okay, for eight weeks, I made a hundred phone calls a day.

• 12:04Speaker 03

  I got five people to talk to a Merrill Lynch broker and we went and had one meeting and opened one account.

• 12:10Tracy Alloway?

  Oh, my God.

• 12:11Speaker 03

  Okay, it was brutal, brutal. And after the first week, I, I said to my dad, I was like, I don't know that I can do this for the whole summer. And he said, yes, you can. You took it on, you gotta finish it. And I started thinking about, and this is the seminal thing that I'm, I'm trying to point to. I started to think about, how am I going to make this more fun? Because it is very difficult to cold call. Now, this was a time when people would answer the telephone, but, and I just started making it a game. And, but what did it teach me? It taught me to pick up the phone and talk to anybody. And when I got to Drexel Burnham, and here there were real financial incentives for picking up the phone and talking to people. I mean, there, they weren't paying me anything and they just wanted me to do this and I was doing it to learn.

• 12:56Speaker 03

  You put financial incentives in place, I found I could call anybody, I could get people on the phone, I could keep people on the phone, I could go see people, I could relate to people, even though I was very young, and I could bring business into the firm. And very quickly, I became good at that. And when I arrived, you know, at Bear Stearns after Drexel Burnham went out of business, I very quickly became a very significant producer and a culture that was kind of eat what you kill. And it was a great experience. I don't think that's the way, I don't think it was the perfect culture. And, you know, cultures evolve, but I do think there's something here. And one of the things we're talking about a lot at Goldman, I think it's really important. I still think human to human contact matters a lot. And I think one of the great opportunities we have with this technology expansion is to

• 13:39Speaker 03

  get our young people out with clients, talking to clients, broadening our client footprint. They're incredibly capable. They're incredibly capable. This shifted over the last 30, 40 years, and it really, I don't think it shifted for the better. And now we're going to shift it back. And I think it's a real opportunity.

• 13:54Tracy Alloway?

  Wait, say more about this because in your op ed, you talk about the Stanford data showing like a 16% decline in entry level hiring. So this is something that's happening right now. And presumably, a lot of the work that younger analysts at Goldman Sachs do right now could be commoditized through AI, right? If I'm building a PowerPoint presentation, I no longer need like 10 analysts to stay up all night to do that. I can just generate it through a platform. So how do you see the role of junior analysts? And then how do you, I guess, train the next generation of banking talent at Goldman?

• 14:28Speaker 03

  I think that's a really, really good question, and I want to get to that. But I just want to comment on one of the things that you said that I think is a really interesting thing for us to think about. Because I did quote that statistic. But I think it's important for us to think about and see that statistic for what it is. Okay. Because when I graduated from college, it was very, very hard to get a job. But not everybody wanted to get a job, okay, in the white collar professions that are defined by the 16%. But I'd also argue even today, if you graduate from a liberal arts college, and you want to go be a school teacher, okay, that's not counted in the 16%. Okay, there's not, there's not a decline. What they've done is they've taken a handful of industries that they're looking

• 15:13Speaker 03

  at that fit this kind of social narrative of what the right kind of job is when you're coming out of college. Okay, which by the way, I think is a very faulty lens to look through. And that group is declining by 16%. Okay, but if you want, what if you want to go buy, what if you graduate from college and you say, you know what, I really think I can do something really cool and entrepreneurial by making the world's best sub sandwich. I'm gonna go open a store and start a sub business and try to grow a sub business and over the next however many decades you grow a huge sub business.

• 15:45Tracy Alloway?

  Joe used to be in the sandwich business.

• 15:47Speaker 03

  Were you in the sandwich business?

• 15:48Joe Weisenthal?

  The sandwich business.

• 15:50Tracy Alloway?

  After college.

• 15:51Joe Weisenthal?

  That's a nice way of saying I had a job at a deli.

• 15:53Speaker 03

  There are so many, but there are so many different things you can do. I've got great friends I went to college with. I have one friend that I went to college with that basically graduated from college. He'd studied science, you know, physical sciences, and he decided he wanted to be an electrician. And he had his own electrical business in upstate New York where I went to college. But then ultimately, he got pulled into other kinds of businesses where the skills he had developed over 10 or 20 years, building his electrician business, could be put into other things and his, his career evolved. And so, there's a narrative about jobs and entry level jobs and what I mean, I don't even know what it all means. What I know is you want to be a learner through life. You go to school to get educated and

• 16:35Speaker 03

  to broaden yourself and to meet people. Not everybody should go to a traditional school. There should be lots of different paths. But the goal is to start on the journey of figuring out what you're passionate about, what you enjoy, how you're gonna make money, how you're gonna support yourself, how you're gonna support hopefully the family that you have. And there are lots of different paths. There are lots, lots of different paths.

• 16:54Tracy Alloway?

  Okay, but assume that we're talking about someone who wants to get into Goldman, out of college.

• 17:00Speaker 03

  So Lawrence is talking here.

• 17:01Tracy Alloway?

  Yeah.

• 17:02Speaker 03

  And I don't mean to, I don't mean to pontificate about that.

• 17:03Tracy Alloway?

  No, no, no, that's fine.

• 17:04Speaker 03

  But I think it's a really important, you know, thing because this goes to the op-ed and kind of the labor force. There's a lot of the labor force that has nothing to do with what we're talking about. And I think that's something that we've got to keep coming back to in the discussion. So, you know, coming to Goldman at this point in time, we hire, we just, right now, okay, we just have 2,500, it might be 2,400 interns starting.

• 17:26Tracy Alloway?

  Wow.

• 17:27Speaker 03

  And in July, we have approximately the same number of permanent new hires that are starting. The first thing is, there are a bunch of them are in, quote, "client-facing jobs and roles." There are a bunch of them that are in operational roles. There are a bunch of them that are in technology and engineering roles. There's a wide, wide range of jobs. I mean, there's, yeah. There are a couple of them that are working in marketing, okay? And advertising. I mean, there's, you know, so a wide, wide range of jobs. All the experiences are different. All the opportunity sets are different. When I was talking to you about out with clients, I was talking about the people that are in the client-facing roles. And one of the things I truly believe in, look, I see this.

• 18:09Speaker 03

  I sat with a group of venture-backed founders at dinner at my apartment the other night. The average age was like 28. So impressive, so smart. By the way, the people we're hiring at Goldman Sachs are so impressive, so smart. They're peers with these people that are going and starting businesses. They can't go out and talk to clients and have an impact. And so with the technology, it makes it more leveraging. And I think you guys saw it, because I've used this example of when I started doing a common stock comparison. Took six hours. You go, microfiche, Wall Street Journal, the only source of historical stock prices. Put it on graph paper, take a picture of it. If you really think about that example, what that example is actually saying is, if you were a company

• 18:52Speaker 03

  and you wanted to know where your stock was trading during the day. Yeah. You had two choices. You could call, or three choices, I guess, technically. You could call your investment banker and say, hey, where is my stock trading right now? And the fact that we had a Quotron in our office, okay? We could tell them. They could, they didn't know. They didn't have a Quotron. Or you could call your stockbroker, if you had one, or go outside your office and find a Merrill Lynch or an E.F. Hutton or a Dean Witter office on the street and look at the ticker tape and wait until your stock would buy on the ticker tape. Okay? Or you could wait until the next day and open up the Wall Street Journal and see where your stock traded that day. So we were offering a huge value service by simply having this technological machine that allowed us to tell them where their stock was trading.

• 19:36Speaker 03

  So if you think about what young people were doing when I started, a lot of what we were doing was taking very primitive technology and giving information to people that were trying to run their businesses. And the pace of everything was very, very slow. We've now, over forty some years, accelerated that enormously. And so the productivity level of all these people is going up, up and up and up. We haven't had fewer people. Now, maybe this technology is accelerating in a way where over time, we will actually fundamentally have fewer people. But what I would argue is the real challenge for us is we've got to find ways to apprentice them and teach them a variety of things that they're not going to intuitively learn because they don't actually have to work as hard to get the answer. When I had to go to the microfiche and look at the different stocks and see how they

• 20:19Speaker 03

  were trading, actually put it on graph paper and absorb the differences and do the math to explain what the percentage compounding differences were, I was learning something.

• 20:27Joe Weisenthal?

  Yeah.

• 20:28Speaker 03

  That now, if you ask for it, you get it instantaneously. You know, has your brain really absorbed what's actually happening? And so the challenge is, how do we apprentice and give people the base of knowledge? But how do we also allow these tools to allow them to get out into the world so that they can really have a bigger impact faster? And we don't have the answers to this yet, but we're really thinking about it.

• 21:07Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got ten minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

• 21:33Speaker 04

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty. Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 22:16Speaker 04

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 22:56Joe Weisenthal?

  Two sort of short job-related questions. First one, you're going to go with yes or no. It's like, those skills that you had, you were very comfortable picking up the phone and so forth, and getting maybe people to answer. Today, is there a role for that person still? That same basic?

• 23:10Speaker 03

  Definitely.

• 23:10Joe Weisenthal?

  Okay.

• 23:11Speaker 03

  Definitely. By the way, I don't think that's going to change. I just, you can, you guys can go look. I gave a commencement speech at Wharton last month, and one of the lines in the commencement speech was, "The phone, the telephone is one of the greatest pieces of technology in the world." You know, use it. A telephone call to someone is 10 times more valuable

• 23:29Joe Weisenthal?

  Yeah.

• 23:30Speaker 03

  than a text or an email. My daughter says that's an unverified statistic, but I know that's true. And it is, if I, if I call you personally on the phone, it's going to have a completely different impact than if I sent you a text or an email.

• 23:40Joe Weisenthal?

  But I don't know your number. I'm not. I would also accept a text from David Solomon. Just as the follow-up, and this is more of a sort of specific right now thing.

• 23:48Speaker 03

  That's not going away. I mean, I really believe, Joe, that's not going to go away.

• 23:51Joe Weisenthal?

  Of that mix of new hires, the range of jobs, including engineering jobs, including, can you identify, is there a change different between today and 2026 versus, say, the pre-ChatGPT era 2021? In terms of, like, have you seen a difference yet? Just in terms of, like, the allocations of anything with any hiring decisions so far?

• 24:12Speaker 03

  Subtle, subtle changes, but you can't look at it in a vacuum. So you said to me, I can be very detailed with you.

• 24:17Joe Weisenthal?

  Yeah, please, yeah.

• 24:17Speaker 03

  You know, I think with all this stuff, it's nuanced, details matter. If you look over the last 10 years. I'd say what's happened is the amount of engineering talent we had at the firm grew materially.

• 24:29Joe Weisenthal?

  Yep.

• 24:29Speaker 03

  On a relative basis to operational talent or client talent. Okay.

• 24:36Speaker 03

  There are a variety of things that happened because of the pandemic. That bloated or inflated hiring across all large enterprises.

• 24:45Joe Weisenthal?

  Yeah.

• 24:45Speaker 03

  And so if you if you say since chat GPT.

• 24:49Joe Weisenthal?

  Yeah.

• 24:50Speaker 03

  Like if you take 2022 is that was like the high watermark of the bloat.

• 24:54Joe Weisenthal?

  This is the problem.

• 24:57Speaker 03

  The high watermark of the bloat.

• 24:59Joe Weisenthal?

  Historians will be vexed by the confounding variables of 2022 for a very long time.

• 25:03Speaker 03

  Absolutely. So so if you ask me a question, I'm like, okay, 2022. Yes, but that's the wrong starting point.

• 25:09Joe Weisenthal?

  Okay.

• 25:09Speaker 03

  Because if you look at 2022, a bunch of what we've done from 2022 to 2025 and now in 2026 was correcting the stupid things that we did in 2020 and 2021. And so I think you've got to look at it through a 10 year lens. And what I would say is at this point, if you look at a 10 year lens, it shifted to more heavily weighted engineering. My guess is that's going to shift differently going forward, given the power of these tools and our ability to code. And you're going to see nuanced changes that probably to some degree reduce the number of people that we start with over the next few years, but probably not what you and I would call dramatically.

• 25:51Joe Weisenthal?

  Okay.

• 25:52Speaker 03

  So I don't want to be, you know, predictive because if I throw out a number and we hear everybody's going to start holding me to the number. But, you know, I just told you we were running it at 2,500, which by the way, looks similar to what we were running at pre-COVID.

• 26:05Joe Weisenthal?

  Okay.

• 26:06Speaker 03

  But lower than the 3,000 plus we were running in 2021. Okay.

• 26:13Speaker 03

  My guess is it's going to be in the next three years. That will contract a little, but not in a way when you and I would say, wow, this is a huge, huge change. We're still going to hire a lot of people out of school.

• 26:22Tracy Alloway?

  I mean, aside from potential headcount reductions and like cost savings, how do you actually measure productivity gains at Goldman?

• 26:30Speaker 03

  That is a great question, Tracy. I can tell you some examples of things we're doing where I know we'll be able to quantify some significant productivity gains, but they're more in the category of remaking operating processes. So what we're doing under what I know you guys have read about 1GS 3.0. So if, if we redo our client award boarding, anti-money laundering KYC processes and we had a process that had 3,800 people touching it, not 100% of their job touching it, and now we'll have a process with a few hundred people touching it. That's a productivity, when it's done, I can measure the productivity gain of that process. Okay. That's different than saying to me, okay, you've got a bunch of people who work in investment banking.

• 27:14Speaker 03

  Okay, how much more productive are they? Now, one measure is I can look at the revenues we have in investment banking and the earnings in investment banking and the number of investment bankers we have and the amount of capital we allocate to that business over the last 10 years. And you know what? Our people are more productive because we're making on a per person basis more revenue, more profit on a per person basis. But we definitely are allocating more capital to the business and the capital's helping and creating leverage. But there's no question, they have better tools, they can do more, we've found ways for them to do more. We also have collaborative power going on inside the firm in the context of 1GS, 1.0 and 2.0 that are adding to revenue growth.

• 27:59Speaker 03

  It's very hard to pull it apart, but I think every five years, we can directionally say, is it more productive? Yes, it is because our, you know, you go back, when the firm went public, the firm had $6 billion of capital, I believe, and we had 16,000 people, something like that, order of magnitude. Today, we have 45,000 people and $110 billion of capital. The firm is much more productive against producing reasonable returns on that capital than it was 27 years ago. I mean, that's clear, but that's a 27 year look, not a year to year to year look.

• 28:28Joe Weisenthal?

  Here's a question. AI works when there's a lot of data pooling together a lot of unstructured data. When I think of a firm like a Goldman Sachs, or maybe a law firm, etc., there's always a little bit of an, I think, I suspect, an alignment problem where maybe the big producer doesn't want to share all their data with the rest of the firm, doesn't want everything in their head just to be in some big knowledge pool that everyone has access to. You might want to be able to take your book of business to a rival shop every once in a while. That's probably always been the case. But I think it's probably a bigger deal with AI, because AI could in theory really leverage all of that latent knowledge that exists in a lot

• 29:08Joe Weisenthal?

  of people's heads. How do you think about getting a firm-wide understanding of what's truly known and understood within many people's heads, so that you can really maximize this technology at a time when, again, it might make sense for at least some relationship players to keep a little bit of knowledge inside their own head?

• 29:28Speaker 03

  Well, it's an insightful question, and I start with the fact that one of the things I'm really proud of about Goldman Sachs is Goldman Sachs is less what you described, I believe, than any other firm.

• 29:36Joe Weisenthal?

  Yeah, then say it the other way, sure.

• 29:37Speaker 03

  I think that we really have, for a long time, it's been part of the culture, but we really have a culture of sharing and collaboration. It is not a star system. People share, share, share. It is like, it's just such an ethos at Goldman Sachs that I think we have less of this problem than other organizations have. But what's interesting to me about your question, and it makes me really think about it, is it's something that I deeply believe that you started with, and I'd frame it in three buckets. This technology is incredibly powerful when you have a clean data set. Put these models against a clean data set, it is extraordinary. Like, it is mind-blowing to me. What you can do, the speed with which you can do it, the information that you can accumulate, and how powerful

• 30:20Speaker 03

  that is when you have a clean data set. It wouldn't surprise you, Goldman Sachs has an extraordinarily amazing data set that we're working very hard on to make as clean as possible, on everything we've ever done from a trading and investment banking perspective over the last, you know, 40-plus years. We happened to build a system 40 years ago called SECDB that was a trading system. So, we have data from all our trading that goes back long before most other firms kept data on this stuff. And so, we're working very hard on that. But these tools, extraordinary when you have a clean data set. When you don't have a clean data set and you send them out into the world, you get really, really cockamamie answers. Let me give you a simple example.

• 31:02Speaker 03

  Just tell a story from a few weeks ago that was another one of these data points for me and really understanding how this all works. It's pretty simple. I was down at the Masters and Rory McIlroy was up by six strokes after two days. And I was like, holy cow, he's probably going to win twice in a row. How many people have won the Masters twice in a row? I know Tiger Woods has, okay? I think Jack Nicklaus has, but I don't know if there's, I can't remember if there's anybody else. So I asked one of the models, hey, how many people have won the Masters twice in a row? And the answer comes back, Jack Nicklaus and Nick Faldo. I was like, oh yeah, Nick Faldo did win. But it didn't say Tiger Woods.

• 31:41Joe Weisenthal?

  Oh, interesting.

• 31:41Speaker 03

  So I said to the model, I said to the model, hey, I don't think you're right. Didn't Tiger Woods win the Masters two years in a row? Model says, wait one second, comes back, yes, you're right. Tiger Woods did win the Masters twice in a row. Why did you get that wrong? I said to the model. Model comes back, well, I use this source, I did this, I did this source. The bottom line is not a clean data set.

• 32:01Joe Weisenthal?

  Yeah.

• 32:02Speaker 03

  Not a clean data set. Garbage in, garbage out. Now, human judgment had to look at that and say, no, no, no, I don't think that's right. Are we going to get to a place where the data sets get better and better and better? Yes, but as long as one of the functions of the model is they go out into the internet and they go out into social media and they go out into the media and they go out into the world, there's going to be a lot of garbage in, garbage out. And the models can get better and better and better. But that's going to be, it's going to be really interesting to see over time how the models get better and better at distinguishing. And one of the things that's interesting is I then asked the model, hey, okay, will you search this differently the next time because wherever you went, got it wrong? And the model said, no, that's not the way it works. Now, one day I think it will work that way and it will search it differently.

• 32:46Speaker 03

  But that's just interesting to me about where we are. Here's the third thing, okay? You were talking about what's inside people's heads.

• 32:53Joe Weisenthal?

  Yeah.

• 32:54Speaker 03

  I personally believe the answer to this is never. And this is one of the magics, the magic things about humanity. This is one of the magic things about creative things. And by the way, part of investment banking and client relationship is creative. It's EQ, it's emotional intelligence around spending time with people, how to connect with people, how to build trust with people. Okay. Machines can be really, really good. Tools can be really, really good. But unless you're in the camp that humanity is not going to be about trust and relationships, I think this is like a never thing. And so the bridge is how to use the tools. Okay. And with the tools, leverage more of your humanity and your connectivity in a special way to be more impactful with people.

• 33:38Speaker 03

  Now, here's an example that I think is an easier example to kind of look at. I have a daughter who's a screenwriter. I've talked to her extensively about this. Because people talk when somebody writes about their voice. Okay. And one of the reasons why, if you really understand the process of writing a movie. Okay. Sure, can AI write a script? Absolutely. But the first thing is, that script, if my daughter's the screenwriter, it is not in her voice unless that model has access to every single thing she's ever written, every single experience she's had in her life, every single emotions he's ever felt. Never going to have that. And so, voice matters when you're writing or doing something creative. Now, here's the thing. She puts her voice on whatever she writes.

• 34:23Speaker 03

  Now she goes to the studio. The producer says, you know, I don't like this. I don't like that. That's a personal feeling. He's not asking the model to say whether I like it or I don't like it. He's reacting to it emotionally because it's creative. It's like relationships. I don't like this. By the way, somebody came in and pitched an investment banking deal. And the CFO said, you know, there was just something, I just didn't like the way that guy talked to me. Okay. That's a, that's a human emotion. Yeah. That matters. That's not going to change. And so this concept of getting things out of people's head, what you're really talking about is human intelligence, humanity, EQ. And I think we're going to figure out how to use these models more powerfully. The data sets are going to get cleaner and cleaner. Yes, maybe. We'll expand better into the second and clean up when you go out in the world.

• 35:08Speaker 03

  But when it comes to the way human beings interact, I actually think this is a superpower that's going to get more valuable and more valuable and more valuable. And it's something we want, I think people should think about, people should try to learn. I think public speaking still matters. I think writing is still going to matter. I think how you communicate and talk to people is going to matter, how you spend time with people, how you believe, all this stuff's not going away.

• 35:46Speaker 04

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 36:28Speaker 04

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 37:09Tracy Alloway?

  All right. So Goldman Sachs bankers should be social maxing, I guess.

• 37:12Joe Weisenthal?

  Yeah, that's right.

• 37:13Tracy Alloway?

  Social skill maxing.

• 37:14Speaker 03

  Well, by the way, the most successful people at Goldman Sachs have extraordinary interpersonal skills.

• 37:20Tracy Alloway?

  I believe it. We interviewed Lloyd Blankfein a couple of months ago and Lloyd, like, he's a funny guy.

• 37:26Speaker 03

  He's super funny.

• 37:27Tracy Alloway?

  Yeah, he's really funny.

• 37:28Speaker 03

  Super funny.

• 37:29Joe Weisenthal?

  You're a fun guy, too.

• 37:29Tracy Alloway?

  Yes, me, too.

• 37:31Speaker 03

  I'm not as funny. I'm really not as funny. I mean, he's much funnier than I am.

• 37:33Tracy Alloway?

  Well, OK, you mentioned looking up share prices earlier on the Quotron machines. And speaking of share price, your stock recently crossed $1,000 Goldman stock.

• 37:44Joe Weisenthal?

  An all-time high.

• 37:45Tracy Alloway?

  An all-time high. So congratulations.

• 37:47Speaker 03

  Thank you very much.

• 37:47Tracy Alloway?

  On that. My question is, how often do you look at the share price of Goldman Sachs? Is that like the first thing you look at when you wake up in the morning?

• 37:55Speaker 03

  Well, I don't. It's not the first thing I look at when I wake up in the morning because I looked at it when it closed the day before.

• 38:01Speaker 03

  And it doesn't, it generally doesn't change overnight. Look, I, during the week, I would say I look at the stock price most days during the week, but it depends on what I'm doing. If I'm in the office, if it happens to be a day when I'm in the office going from meeting to meeting, and in between meetings, you know, I jump on my desktop and I'm responding to emails or making telephone calls, the screen's up. And I'm looking at our stock price, but I'm looking at a bunch of, I'm trying to look at what's going on in the market, have an absorption as to what's going on in the market that day. If it's a day where I'm in a bunch of meetings and I'm on the road, I might not look at the stock price at all, but probably at the end of the day, I'd look and say, hey, what happened today? And by the way, it's not just our stock price. It's actually what happened in the market today. For me to be effective, I have to be super in touch with what's happening in the market every day. And I spend time on the weekend also catching up on it.

• 38:46Speaker 03

  You know, from my perspective about our stock price, of course, it's human nature. I'm going to look and see. But what I really care about is kind of year to year to year. And what I really believe deeply, and it's been one of the things our leadership team has really been focused on for the last eight years, is if you grow the earnings of the firm, if you invest in growth in the firm and you grow the earnings of the firm, the stock will do just fine. The multiple will move around, but if you grow the earnings of the firm, the stock will do just fine. And so we've been focused on investing in the business and growing the earnings of the firm. And we've grown the earnings of the firm material. We put it, we had our first investor day in January. January 2020, and we put out a plan and we've been executing against that plan. And since then, we've grown the revenues of the firm 65 ish percent. We've grown the earnings of the firm about 140 to 145%.

• 39:28Speaker 03

  And what do you know, the stocks reacted really well and we've gotten a little bit of a better multiple because it's a much bigger, more diverse, durable business. The durable revenue nature of the business is better. So we're getting a better, better multiple on what we're doing. But I'm super excited because I now look ahead for the next five to 10 years. And I look at this technology and our ability to remake operating processes and take the most productive people and have them spend more time with clients and broaden our client footprint in areas like wealth management, et cetera. I'm like, wow, we can really grow the firm. We can really grow the firm and grow the earnings further because we're going to have more capacity to invest in growth. And so that's super exciting. And so it's been a journey. I mean, when I started, the stock was around 200 and you know, now the stock's over 1,000. By the way, it could go back, but it's not going back to 200.

• 40:12Speaker 03

  But you know, the stock can back off, the multiple come down, our earnings could slow if we went into a tough economic environment. But fundamentally, the firm is bigger, broader, more diverse, more durable. And I think on a super course for more earnings growth and more performance for our shareholders over the next five years.

• 40:28Joe Weisenthal?

  So the performance is objectively strong, but you know, no offense. You can see a lot of charts right now in the market that are going straight up into the right.

• 40:36Speaker 03

  Absolutely. The important, the important thing, and I know you know this, Joe, the important thing is to look at the relative.

• 40:40Joe Weisenthal?

  No, I know, I know. And Goldman.

• 40:42Speaker 03

  The relative performance over the time we're talking about is top of the heap.

• 40:47Joe Weisenthal?

  Totally.

• 40:48Speaker 03

  And we're going to keep driving to try to deliver that.

• 40:49Joe Weisenthal?

  But I got a sort of a capital markets question for you. That's sort of maybe as a banker, you might have some thoughts on. So connecting it to the AI conversation. What was your thought when you saw, or maybe your head's uninvolved in it, Google making an equity raise to continue? I like, that was interesting because there's been a lot of debt financing from the big tech companies for the AI build out, which we could have done a whole episode just on that. What do you make of a company that big doing an equity raise at these levels and even doing like a private placement? When I asked ChatGPT, and it could be wrong, as your example with Tiger Woods noted. When I asked about comparables, like what other big companies did these private raises?

• 41:31Joe Weisenthal?

  They're almost all crisis era Berkshire investments, including mine Goldman. But what do you, what did you make of that? Google doing an equity raise to finance rather than a debt raise?

• 41:42Speaker 03

  Well, there are, you know, a couple of things to think about here, but first of all, I know a little bit about this. There's some things I can talk about and some things I can't. But I think you know that the firm ran this whole process and the firm was the only bank that was involved in this for the last five months up until a couple of days ago when other banks were brought in to participate. The firm ran this over the last five months. This was Goldman Sachs's deal and the team led by Yasmin Kupal and Kim Posnett and David Ludwig, you know, under Equity Capital Markets Business did an extraordinary job. This is one of the largest, if not the largest, secondary follow-on equity offering ever.

• 42:14Joe Weisenthal?

  Yeah.

• 42:14Speaker 03

  And we're ultimately, if the green shoe is exercised, we're going to raise 85 to 90.

• 42:18Joe Weisenthal?

  It was up this just morning from 80 to 84.6.

• 42:21Speaker 03

  Yeah, we upsized it and the green shoe, my guess is, given the way the stock's trading, will probably be exercised in the coming days. And so they raised $90 billion. And so it's really extraordinary. And by the way, I think one of the interesting things to think about, this is the first concrete tangible data point on investor demand at this scale. And we have some other things coming up at this kind of scale that, and so this is a very important tangible investor data point. And I think one of the things that's very helpful to the firm is sitting in the middle of this, we got a lot of information on how investors are thinking about all this and the others that I think is super, super interesting for us. But it's unprecedented in scale and it's reflective of the fact

• 43:01Speaker 03

  that we now have some of the largest companies in the world that have capital plans over the next five years that are very, very significant. And they can fund a lot of it with debt, but I think you're going to see, and Alphabet is the first one to make this decision, I think you're going to see a bunch of them fund a bunch of it with debt, but also raise more equity because they're starting to think about, okay, what does this look like? It's one thing, what does it look like this year, but what does it look like over the next five years? How much capital do we need? How much debt? Equity markets are good. Our multiples are pretty high, given the way the market's responding at the moment. We've got to think about our leverage going forward, the capital's available. And so the analysis is.

• 43:45Speaker 03

  And this is not all public, but in specifics, but I'll talk generally, a company has to look and say, not just what's our one, two or three year capital plan, what do we think our capital plan is over the next five to 10 years? How's that going to change our leverage? What if there was a change in the market multiple? Okay, and our leverage is up, how are we going to feel about that? And it requires kind of a long-term conviction on what you're doing from a capital deployment standpoint and making the decision as to what makes you more comfortable in kind of the leverage imbalance between debt and equity. I think you're going to see more companies issue equity because capital's available and you want to be cautious about this. If you get it wrong, if you totally rely on debt and you get it wrong, you will really regret if if you wind up having a downside scenario that's tougher than you expected.

• 44:29Speaker 03

  So I think you can see more companies, you know, think that through. And Alphabet's the first company to step forward. Our, our team spent a lot of time over the last five months, really helping them think through these kinds of issues. They were, I think they were very smart to really think it all through.

• 44:42Tracy Alloway?

  Well, speaking of equity raisings, you got the lead on the SpaceX IPO. So again, congrats on that.

• 44:48Speaker 03

  Again, our, our team really, really the team on that, really, really extraordinary. Dan Dees, Kim Posnet, I mean, just, just really, Suzie Scher, really, really extraordinary partners of the firm have just, just done an extraordinary job over, over years. I mean, over years.

• 45:04Tracy Alloway?

  I imagine this was a very competitive process, right? And you were talking a lot about the importance of relationships earlier. Using SpaceX as a concrete example, like what does that relationship actually look like? Is it true that you were, you know, sliding into Elon Musk's DMs to pitch yourself? Like, what is it that you offer to a potential client that other banks can't offer?

• 45:26Speaker 03

  Well, I mean, there, there are things that I'm willing to say and try to give you some perspective on it. But the most important point that I could amplify about this is we didn't win this in the last six months. We won this over the last 20 years. Wow. The decision wasn't made, the decision wasn't made until the last six months. And there's a lot of things that the team did over the last six months that contributed to the ultimate result, which by the way, now we have to execute. But this is a cumulative effort of lots and lots of people over 20 years. And we first as a firm, we first met Elon Musk. And the person that first was responsible for covering him was a guy named Stuart Bernstein, who was doing a bunch of stuff around kind of green energy.

• 46:11Speaker 03

  And he was, he and his brother had SolarCity. And that's, that's where we first connected with Elon. And then we took Tesla public, when Tesla went public. Sometime around SolarCity and Tesla, I first met Elon. And so I've known Elon for more than 15 years. Dan Dees, Stuart Bernstein, kind of semi-retired from the firm in the early part of the last decade, so let's say 2012, 2013. And Dan Dees, who now runs our global banking and markets business, was an investment banker who was just coming back to the US after having been in Asia for a long time. And he was basing out of the West Coast and running our TMT banking business. And he started building a personal relationship with Elon. And Dan has built a really wonderful dialogue with Elon over a long time. But it's not a straight line.

• 46:56Speaker 03

  And there are times where we're doing things and we're not completely in sync. But at the end of the day, as a firm, we've been long-term committed to Elon, his companies, his teams. By the way, in this situation, Brett Johnson, the CEO, is a hugely, hugely important guy. And we've had people spending time with him for years and years and years. And that's what our, that's what our business is. Our business is building trusting relationships over time with people, giving the right advice, taking a long-term view, not being transactional, and trying to earn trust. So when the biggest, most important things happen in the world, we have a better chance of being asked to provide services.

• 47:41Speaker 03

  And that's kind of what we do.

• 47:43Joe Weisenthal?

  Did you send him a DM?

• 47:44Speaker 03

  So with respect to the DM, it is, unfortunately, it's untrue that I pitched Elon via DM about the deal.

• 47:52Joe Weisenthal?

  Okay.

• 47:52Speaker 03

  But what is true, and this is the way facts get confused. Elon, some point in the last year, Stopped taking texts on his phone or emails and started telling people that he knew that if you wanted to get in touch with him, direct message him on X. Ah. And so because I have a relationship where I reach out to Elon and we exchange messages about a whole variety of different things, I stopped sending him texts on his phone and started direct messaging him when I wanted to, um, when I wanted to.

• 48:24Tracy Alloway?

  This is how Joe communicates.

• 48:25Joe Weisenthal?

  This is entirely what Tracy is.

• 48:27Speaker 03

  When I wanted, when I wanted to communicate, I started communicating. So I actually, I went back actually and looked at the chain.

• 48:32Joe Weisenthal?

  Yeah.

• 48:32Speaker 03

  You know, on my X account over the last six months, just to make sure I wasn't wrong about this when I saw it in the press and I said to Tony, I don't think this is true. And I never, I never, I never asked Elon in a text message about, about the IPO. We focused on his team. We focused on the work that we had to do and we're really proud and pleased to be leading this and we're going to do everything we can, working with the other banks to get the best result that we can for SpaceX.

• 48:57Joe Weisenthal?

  So it looks like this year is going to be a year of mega IPOs. We had the private confidential filing from Anthropic. We'll probably get a couple of others, et cetera. However, the much bigger story is still generally private capital markets have gotten so liquid that some of these very successful companies, they could, in theory, maybe never go public if they didn't want to. Some people think this is bad for capitalism, that a bunch of big companies are going to come in and that unlike the Microsofts and the Apples and so forth, where the broad public really got to participate, even if you were just an index funded investor, and a lot of the upside, these companies are going to be coming at some of the biggest market cap companies in the index and the public investor will not have caught any of the ride from

• 49:39Joe Weisenthal?

  the 500th biggest in the S and P 500 to the 20th, et cetera. Does this break capitalism? Is this bad for the US or is this fine?

• 49:47Speaker 03

  Well, I'm going to give you a conclusion first and then we can try to dig in a little bit to the details, which I know you guys love to do.

• 49:53Tracy Alloway?

  Mm hmm.

• 49:54Speaker 03

  But I just start, I don't think this is going to break capitalism.

• 49:56Joe Weisenthal?

  Okay.

• 49:56Speaker 03

  And I think it's, and I think it's good for the US.

• 49:59Joe Weisenthal?

  Red headline.

• 49:59Tracy Alloway?

  There goes your headline.

• 50:00Speaker 03

  I think it's good, I think it's good for the US that we have the biggest, you know,

• 50:03Joe Weisenthal?

  By the way, breaking hot, hot headline just moved on the terminal. Anthropic said to tap Morgan Stanley Goldman Sachs to lead IPO. This just came out.

• 50:12Speaker 03

  Okay.

• 50:12Joe Weisenthal?

  So there you go. Okay. Anyway, keep going.

• 50:14Speaker 03

  So I think this is good for the United States to have the biggest, most important companies in the world. When you talk about what's happening, there are a lot of complex things happening about why we have fewer public companies today than we had 25 years ago.

• 50:29Joe Weisenthal?

  Yeah.

• 50:30Speaker 03

  And this is a long-term journey around policy decisions and market structure over a very long period of time. The reason that companies like Microsoft went public when they did it the size that they did was there was no capital available to them other than going into the public market.

• 50:44Joe Weisenthal?

  Right, right.

• 50:45Speaker 03

  But it's not fair to say that investors got to participate, you know, in everything because it's not like, there's more access for investors today.

• 50:53Joe Weisenthal?

  Well, no one talks about the 900 companies that went to zero, that went public in the same year as Microsoft or whatever.

• 50:57Speaker 03

  I mean, that's so, and by the way, that's another thing, most companies don't survive. So it's, it's just not that simple. I do think we've created a regulatory structure and a market structure that really makes it unattractive to go public until you have to. The reason these companies are going public now is because they have to. They have capital needs that are so voracious that it is not prudent for them to try to do 100% of it in the private market and not have a public currency. It's just not prudent. And that's why I think you're going to see a bunch of these companies go public because they actually need the capital. It's interesting. I've advised companies for years, and at one point 25 years ago, I actually ran the equity capital markets business at Goldman Sachs. That was a job I had early in my career in Goldman Sachs. And, and I used to say to companies, there are a few reasons to go public.

• 51:42Speaker 03

  You need the capital, you need the currency, you have to create liquidity for early investors. But all the other stuff that people talk about is really not critical. And you have to recognize that if you're running a company successfully and you don't need those things, when you take it public, you will run it differently. You will run it differently. It is different running a public company than a private company. There are different pressures, there's different life cycle of how you have to respond, you will run it differently. And so my advice has always been wait as long as you possibly can to go public. Okay. If you're giving advice to companies. And I think companies have recognized the capital's been available privately at most

• 52:26Speaker 03

  scale, the liquidity's been available in a variety of different ways at most scale. The currency thing is tricky, but generally speaking, with these growth companies, they don't need the currency because they're growing, they're not doing M and A. And so I think you're going to see a bunch of these companies go public because they need the capital, because they've reached the scale and they have, they have a demand for capital where they need the, they need the capital. And I think the current SEC chairman is working on a variety of things that hopefully will take some of the friction out of going public, which will help a little bit. But at the end of the day, given the way markets work and indexation and passive funds and ETFs, you know, a $5 billion market cap company with an $800 million IPO is just,

• 53:10Speaker 03

  it's the discount associated with getting that going has been less attractive to, you know, to investors. And part of the reason is, is the public capitals, but private capital has been available without a discount. Yeah. But that, by the way, that could be a cyclical thing. In other words, we could see periods of time where private capital will have a bigger discount and the public market will be more efficient. And then you'll see more of those companies come to the public market. But I think fundamentally, we're going to operate with fewer public companies and the companies are going to be bigger. I mean, that's just, that's the way the market structure is evolving.

• 53:57Speaker 04

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 54:39Speaker 04

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 55:20Tracy Alloway?

  Okay, so speaking of capital being available, which is kind of putting it mildly, the markets right now seem kind of crazy to me. And you were at the Economic Club of New York yesterday talking about markets being in more of a greed stage than a fear stage. Based on your Wall Street experience, and again, you mentioned you started in the early 1980s, have you ever seen anything like this? Does the current time period, I don't know, have a historical analogy for you?

• 55:47Speaker 03

  Sure, there are. In fact, somebody said to me recently, this is unprecedented. They were talking about 10 companies having 30 some percent of, 30 some percent of the S and P,

• 55:57Tracy Alloway?

  Yeah.

• 55:57Speaker 03

  you know, waiting on a market cap base. And I was like, no, it's not unprecedented. How about the 1920s? How about the 1960s? How about the late 1990s to 2000? I made the comment yesterday at the Economic Club because I was asked about the way the stock market's running. And if you actually look at the whole segment, I said a lot more than that. And I actually said before I said it, I said, look, I'm going to say something and I know it's going to create a lot of headlines. But I do, I do think it should be said because I do think I'm seeing some of that behavior that I've seen before. And people are worried about missing out on this technology boom, whether it's compute, whether it's storage, whether it's chips, et cetera. And so people are crowding in. And that is a, that's a greed thing because they want to participate in their fear of, of missing out.

• 56:41Speaker 03

  What I should have said, okay, at that moment was all of that. But then I should have said, but you know, it's kind of interesting because if you look at the S and P 500, the top 10 companies, which by the way are mid to high 30s market cap. And those other three periods, the top 10 companies were also in the 30s. And one of the things I have pointed out to people is these top 10 companies actually have more earnings.

• 57:03Tracy Alloway?

  Right.

• 57:04Speaker 03

  Than the companies did.

• 57:05Tracy Alloway?

  They generate a lot of cash.

• 57:06Speaker 03

  They generate a lot of cash, so that's, that's something to observe. But what I should have said is the market multiple, the earnings multiple on the top 10 companies in the S and P, these are approximate numbers, so don't hold them to me directly. I actually looked at this this morning because I thought this would come up. And so hold it as approximate. The top 10 companies are trading on forward earnings in the low 30s. Okay. In the 1990, late 90s, 2000 internet boom, those companies were trading at more like high 40s to 50.

• 57:34Tracy Alloway?

  Yeah.

• 57:35Speaker 03

  Okay, you think about Cisco when its market cap was over 600 billion. So these multiples, yeah, are high, but the growth's pretty good. The earnings are real. Those numbers are on the high end of the distribution for sure, but not crazy. The other 490, okay, are trading between kind of 17 to 20, which by the way, 20, high side. When you add it all together, it's kind of 22 times forward. A lot of it's at 17. I actually think the 17 sounds pretty attractive if you think that all these companies are going to be able to use technology. Not all of them will execute successfully, but be able to use technology to improve operating processes and create more efficiency and therefore faster earnings growth and more investment in their business.

• 58:17Speaker 03

  You should see over the next five years improvement in the earnings growth of that other 490. I'm talking on average. So is the market running? Yes. Are people crowding into a handful of stocks because they're fearing of missing out? Yes, that's what I meant about the greed versus, versus fear. But this could go for quite some time because it's narrow. And on a historical context, it doesn't look like Polaroid at 80 times earnings in the 1960s. It doesn't look like RCA at an infinite amount of time times earnings in the 1920s. So it's, I'm not sure is the bottom line. I'm not sure, but there's no question for a narrow group of stocks, the market's really running. And we've got a lot of, what's interesting to me is we have a lot of things going on in the macro.

• 59:00Speaker 03

  With the war, with the oil shock, supply chains, inflation getting stickier that are going to have an effect and you know, the market may absorb all that differently than it's absorbing it at the moment. At the moment, it's kind of brushing it aside.

• 59:14Tracy Alloway?

  Things can always get crazier, as Joe likes to say.

• 59:16Joe Weisenthal?

  That's right. All right. You know, like I said, you're going to be involved in the Anthropic IPO. Congrats on that. Just between the three of us here.

• 59:24Speaker 03

  Just between the three of us?

• 59:25Joe Weisenthal?

  Just between the three of us here. I know you're part of Mythos and Project Glasswing. And there's this cynical take. It's like, oh, they didn't, they just released it to a small group because they actually didn't have enough compute, whatever. Have you, what have you seen? And is it really like, is it keeping your cybersecurity people up at night? Have you found a bunch of bugs that you didn't know about? Tell us, what can you tell us about that?

• 59:47Speaker 03

  Here's what I can say publicly. I think it's very important. These models are incredibly powerful. And I think it's very, very important that these companies that are producing these incredibly powerful models work collaboratively with the government and with the private sector to give people opportunities to understand what these models can do and to try to continue to secure our critical infrastructure as effectively as we can. Do I think the purpose, that the process around this was perfect? No. But we're learning as we go. And I think there are a lot of things in the process that have been good and have been helpful. It wouldn't surprise you that just using financial services, for example, is the eight largest banks are significantly ahead on cyber investment and cyber protection over

• 1:00:32Speaker 03

  the last decade than bank number 2000 that sits in the middle of the country.

• 1:00:36Joe Weisenthal?

  Yeah.

• 1:00:37Speaker 03

  In Arkansas. Okay. And the risk in financial services, it doesn't mean that there can't be issues for the biggest banks. And the biggest banks need to constantly, constantly, constantly, constantly think about this. We invest a lot in this and we're all over this. That doesn't mean we can't have a problem. We could. But the risk is that a medium sized bank has a problem and it creates fear in a broader group of medium sized banks. And you don't have to look that far. If you look at SVB and how SVB had a problem and it created fear in a variety of banks, you could see a cyber attack at a mid sized bank, creating ripples through the banking system, which will be dislocating. And so I think it's really important that we figure out how to help the broader

• 1:01:22Speaker 03

  business community get more invested. And by the way, that's something that's got to happen, both by the private sector investing more, but also the government finding ways to help. So, you know, I do think that the administration's executive order to get these models is important. There's got to be coordination between the government and business on this. And I think the process will continue to get better. There are going to be more models. There's going to be more process. And, you know, we've obviously had a team that's learning, looking, you know, when we learn things, making adjustments, and we're going to continue to do that. But that's, that has been a part of what we do. This might be accelerating a little bit, but it's not that different from what we've been doing for a long time. Just maybe the pace of some of the change on what these models can do is going a little bit faster. And so we've got to be more nimble and we have the resources to do that. What

• 1:02:06Speaker 03

  I worry about is all the companies that don't have the resources to do it. And it's, by the way, it's not just financial infrastructure. Think about energy infrastructure. The biggest utility company is going to be way ahead of, you know, the local water company in Akron, Ohio. Right? And so everybody's vulnerable. And so we've got to figure out how to help people and bring people along.

• 1:02:23Tracy Alloway?

  I want to pivot. I guess we're going to run out of time soon. So I want to pivot slightly to a very important question, which is your own use of AI. Joe and I know that you're into music. You like to DJ famously. Have you been experimenting with AI generated music?

• 1:02:39Speaker 03

  Yeah, I mean, I've been, I've been playing with it. And what I'd say is, what I think's cool about it. As someone who's produced a bunch of music, and I want to come back to that because I think there's an important kind of lesson to learn about history in terms of music production. Good, let's go. I think it's super cool, but what it does is it opens up the creative channel to people that would never have an opportunity to produce music. Okay, let's just a little bit of history about music production. Because by the way, thirty or forty years ago, I could never have produced music. Now, it so happens, I played an instrument when I was in elementary school and high school, I played the saxophone, I can read music, I understand music theory because I played an instrument for twelve years. When I was in, you know, out of college, you know, I would call myself a recreational

• 1:03:23Speaker 03

  drummer, I mean, I could sit on a drum set and carry a two four beat, you know, so I I understand bass music theory. But I've been a rock and roll guy forever, like I love Bruce Springsteen, okay? I saw my first Bruce Springsteen show in nineteen seventy-eight, the Darkness on the Edge of Town tour. When he wrote that album, and by the way, the albums that came before had a bunch of them that came after, he sat in a studio, or he sat at a piano, or he sat with a guitar, he wrote notes down on paper, he wrote lyrics down on paper, he played around with it. Then he invited human beings into the studio with him that played piano, organ, drums, guitar, horns, saxophone, all different things. And they sat there and they made the music.

• 1:04:07Speaker 03

  And somebody recorded it and it got pressed onto a vinyl album. Okay, a lot of the music that we listen to today has been made on a computer on platforms called Logic Pro or Ableton. Which is actually how I worked to produce the music that I produced. And so if you want horns, you can choose from a hundred and fifty different horns. Okay, you don't need fifteen different musicians. Okay, nobody's talked about the difference, how technology evolved, and by the way, what it did is because Logic Pro and Ableton exist, and I'm relatively dysfunctional on the platforms, you know, I can muddle my way around, but I need an expert to help me because they can do in three seconds what takes me ten minutes. But what it allowed is for somebody to say to me, hey, I want this kind of a sound.

• 1:04:50Speaker 03

  Okay, I didn't now have to write the musical notes down. Okay, you could basically, basically take out a piano and say this chord sound, this chord progression, try it on the computer. You could say, I want this to be done in horns instead of in a piano, click, it's now horns. And you can basically put a top line together that's very interesting with a computer. A lot of the music that's produced today that we listen to is produced that way. Okay. Now, what you've got is you've got an application that's basically doing that.

• 1:05:23Tracy Alloway?

  Mm hmm.

• 1:05:24Speaker 03

  Okay. And I think there are a couple of big issues that need to be wrestled through with this. The first is these AI apps are using other people's content in some way.

• 1:05:35Tracy Alloway?

  Right.

• 1:05:35Speaker 03

  And the artists aren't getting in any way compensated for that. And I think you've got to think about how you're going to bring the artist community and their IP into the discussion of this over time. And, you know, it's not gotten a lot of attention, but I think it's a very, very important, a very, very important thing that has to be dealt with. And secondly, this goes back to the whole discussion I had about voice when I was talking about my daughter and screenwriting.

• 1:05:59Joe Weisenthal?

  Oh, yeah.

• 1:05:59Speaker 03

  Okay, the stuff I produced, okay, it's my voice. I said, I like, I like the way this sounds to me. So do it this way. I like the way this feels. So let's try it this way. Okay. And then you put it out there and you see whether or not anybody likes it. Obviously, the technology allows you to do it faster, but without a human being really then massaging it and tempering it. Okay, I think you get, you're going to get at the moment, certainly mediocrity and as opposed to really, really interesting resonant stuff.

• 1:06:33Tracy Alloway?

  All right, David Solomon, clearly you've given the music industry quite a lot of thought. Thank you so much for coming on Off Lots. Really appreciate it.

• 1:06:40Speaker 03

  Well, thank you for having me, guys, and I appreciate, appreciate the conversation.

• 1:06:43Joe Weisenthal?

  Yeah, it was fantastic. Thank you so much.

• 1:06:45Speaker 03

  Appreciate it. Thanks.

• 1:06:46Joe Weisenthal?

  Absolutely. We'll do it again.

• 1:06:47Speaker 03

  We will.

• 1:07:00Tracy Alloway?

  Joe, that was a lot of fun.

• 1:07:01Joe Weisenthal?

  A lot of fun.

• 1:07:02Tracy Alloway?

  A lot of fun. Kind of surprised how much thought David puts into the music industry, to be honest.

• 1:07:06Joe Weisenthal?

  Yeah, no, I loved, I loved, um, I loved that you asked that last question and I liked how thoroughly he answered it. I wasn't sure if that would be the type of thing where he's like, well, I gotta focus on the banking. You know, the thing that really shocked, and there's a number of themes within the conversation that are very important to think about. But, I mean, he's really good with dates and names. And as someone who is not good with names, specifically, and I'm okay with dates, I asked him that question. I was like, well, what do you have that like, okay, you stood, there are other bankers and you were like a producer, you get some of those, you get that sense, right? Someone who's like that good at like crediting the right people, knows the name, knows the days, knows what they contributed. I kind of wish I had that skill a bit more.

• 1:07:48Tracy Alloway?

  Yeah, you can always tell a good Odd Lots guest by like how many specific dates and data points they actually bring up.

• 1:07:55Joe Weisenthal?

  Well, I know a good data point, by the way.

• 1:07:56Tracy Alloway?

  Just the one.

• 1:07:57Joe Weisenthal?

  There's one data point. So when, in the music question, and he mentioned having gone to see Bruce Springsteen's Darkness on the Edge of Town tour. That album came out really close to the bottom in the 1970s. And, but this is why it's interesting, because plenty of albums came out. Bruce Springsteen re-released Darkness on the Edge of Town in 2010. So twice that album has been associated with sort of like generational historic lows in the market.

• 1:08:22Tracy Alloway?

  Oh, that's funny. Okay. So we'll know the crash, the crash is coming when Bruce Springsteen re-releases this for the third time.

• 1:08:28Joe Weisenthal?

  Well, no, the next time, there's gonna be, at some point, there'll be another crash when he re-re-releases it.

• 1:08:33Tracy Alloway?

  That's the bottom. Yeah.

• 1:08:34Joe Weisenthal?

  That's the buy signal.

• 1:08:35Tracy Alloway?

  All right. All right. Important data point here. But no, thinking about the AI job situation, this is a theme that keeps coming up, which is if knowledge is commodified, if knowledge and experience gets commodified on a single platform, then the human interaction, social maxing, looks maxing, whatever you want to call it, seems to be getting more important.

• 1:08:57Joe Weisenthal?

  I would actually even say there's another thing. It's absolutely true. And I would say there's probably something else, which is that, okay, like, everyone gets this sort of like commodified AI answer. So, okay, then you can infer that the human touch will be more important. But then you add in the fact that the last 15 years of mobile phones has destroyed so many people's like ability to like make eye contact, that it'd probably be even more in a premium, even setting aside AI, because the skills are probably just going to get rarer as so many people lose their minds to the phone and the internet.

• 1:09:25Tracy Alloway?

  All right. So everyone, remember to look into each other's eyes when you're speaking with someone. And I guess pick up the phone for David's advice.

• 1:09:34Joe Weisenthal?

  I also just thought it was really interesting that he thinks we're going to see more public companies doing private equity offerings. That because I did that that alphabet headline, the Google headline, that was a big deal. And I think caught a lot of people by surprise. So the fact that it's like, this is the first of multiple, he expects is a very interesting market trend to watch.

• 1:09:53Tracy Alloway?

  For sure. All right. Shall we leave it there?

• 1:09:55Joe Weisenthal?

  Yeah, let's leave it there.

• 1:09:55Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 1:10:01Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at theStalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, Cale Brooks at Cale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all these topics 24/7 in our Discord, discord.gg/oddlots.

• 1:10:25Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk to the CEOs of big banks, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 1:11:16Speaker 05

  Congratulations, you've built a dashboard. But now comes the follow-up question, and the follow-up to the follow-up, and the dashboard for that. Meet Hex. Give everyone the power to ask their own questions, explore data, and build with AI, all in natural language. Because every answer should spark another question, limited only by your curiosity, not your data team's bandwidth. Go deeper than dashboards. Visit hex.ai.

• 1:11:46Speaker 06

  A business gift should do more than check a box. It should reflect your brand, and show someone they're appreciated, recognized, and truly seen. 4imprint offers thousands of high-quality customizable products, like premium apparel, drinkware, tech, and more, making it easy to create a gift that feels meaningful and on-brand. And with 4imprint's expert support and their 360-degree guarantee, you can be 4imprint certain your order will arrive exactly as intended. Explore gifting with confidence at 4imprint.com. 4imprint, 4 certain. If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity, the next investment, the next move.

• 1:12:29Speaker 06

  But sometimes, what matters most is being ready for what you never saw coming. For more than 75 years, Cincinnati Insurance has worked with independent agents to help protect businesses, homes, valuables, and more. Because planning for the future isn't only about knowing what's next, it's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at c-i-n-f-i-n dot com.